Ladies and gentlemen, good day and welcome to the Rainbow Children's Medicare Limited Q2 FY 2027 earnings conference call hosted by IIFL Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani. Thank you, and over to you, sir.
Yeah. Hi, good morning, everyone. This is Rahul from IIFL Capital. I welcome you all to the second quarter earnings conference call of Rainbow Hospitals being hosted by IIFL. From Rainbow, we have with us today Dr. Kancharla, Chairman and Managing Director, Mr. Abrarali Dalal, Group CEO, Mr. Sudarshan Patodia, Group CFO, and Mr. Saurabh Bhandari, Head of Investor Relations. Over to you, sir, for your opening comments.
Thank you, Rahul. Good morning, everyone, and thank you for joining us for Rainbow Children's Medicare Limited earnings call for the quarter ended September 30th, 2026. We have delivered another quarter of robust growth with healthy numbers from matured, emerging, as well as new hospitals in inpatient volumes, outpatient footfalls, as well as deliveries in a seasonally soft quarter because of a lax monsoon. Revenue grew by 23.2% year-on-year to INR 548 crore, while EBITDA and PAT grew by 14% and 11% respectively. During the quarter, we commenced operations at a newly acquired 70-bed hospital in Nellore and 50-bed brand-new hospital in Guntur. These additions strengthen our presence across coastal Andhra Pradesh, extending our network from Visakhapatnam to Chennai. The Government of Andhra Pradesh has allotted two acres of land parcel to build a pediatric specialty hospital in Amaravati, the new capital city of Andhra Pradesh.
We plan to build this hospital in two phases with initial bed capacity of 150. Turning on the projects, our approach to the capacity expansion remains disciplined with a focus on building the high-quality hospitals with a clear division of spaces for pediatric specialties and obstetrics to have a seamless operations. We have 1,050 beds in pipeline at various stages of construction right now. In Indore, we expect to commence clinical operations in Q3, and an adjacent plot, which is to be built for greenfield of 120 beds, is expected ground breaking on Diwali Day. A 100-bed brownfield hospital in Malad, Mumbai, is in active construction phase. We are fast-tracking it to start clinical operation in the Q1 FY 2028. At Coimbatore, 130-bed greenfield hospital is likely to come for internal works in April 2028 and is expected to be ready for operations in Q3 FY 2028.
Coming to NCR, Gurugram hospitals, Sector 56 of 125 beds is near to completion of the shell and is expected to complete its internal works and ready for operations in Q3 FY 2029. Sector 44, 325-bed hub hospital to be completed for clinical operations in Q1 FY 2029. Spoke hospital of 100 beds in Seegehalli, Bengaluru, and 150-bed greenfield hospital in Pune are in early construction phase and likely to be ready in second half of FY 2029. As we are going to become the world's largest pediatric specialty hospital group with a pan-India presence, we have initiated a comprehensive clinical governance framework. This initiative is called One Rainbow Model, which includes the protocolization to standardize the care and building robust multidisciplinary teams in inclusive environment. This will ensure the seamless quality care to deliver high-quality outcomes across the group.
The new HIS implementation has gone live successfully in our hub hospital, Hyderabad, with a new generation EMR is being used 100% both in OP and IP by all the stakeholders. We would expect to complete HIS rollout in four months' time. Coming to some clinical excellence. Rainbow Children's Hospital successfully performs a highly complex living-related liver transplant surgery on a six-week-old baby weighing 2.9 kg at our Banjara Hills Hospital, Hyderabad. This baby was diagnosed with a gestational alloimmune liver disease, a very rare condition, rapidly progressed to liver failure, where the baby required an urgent liver transplantation. The baby's mother donated a small segment of the liver, which was carefully reduced to the 62 g, the graft to suit the baby's size. The procedure was significantly surgically challenging and given the baby's extremely small blood vessels for anastomosis and a limited abdominal space.
The postoperative course was equally challenging with the multiple complications of the respiratory and intestinal obstructions. This baby sailed through very successfully and eventually discharged in five weeks time. Both mother and baby very healthy with normal liver functions and growing very well. This surgically highlights the depth of our pediatric surgical transplant capabilities and the strength of our multidisciplinary teams in delivering care in complex situations. As I look forward, I firmly believe that our established clinical model, the leadership capability, and the disciplined capacity expansion will support our long-term growth to create value for all the stakeholders. With that, I would now like to introduce Mr. Sudarshan Patodia, our Group CFO, before Mr. Abrarali Dalal, our CEO, takes an update on operational and financial performance of the quarter. Mr. Sudarshan?
Yeah. Thank you, sir. Good morning, everyone, and thank you for joining us today. In my close to two decades of experience, I have worked in the FMCG, retail, and healthcare industries. I have led finance and strategy roles, driving core finance, business and strategic finance, and capital markets focused on long-term value creation for all stakeholders. I'm excited to be a part of the Rainbow team, which is India's leading pediatric and perinatal healthcare chain. Rainbow has now embarked upon a rapid scale-up journey by enhancing its pan-India presence and tapping multiple levers of growth anchored on clinical excellence. I look forward to working with the Rainbow team to further strengthen its market standing and deliver desired organizational outcomes. Thank you once again. I would now like to hand over the mic to Mr. Abrarali for an update on the quarter.
Thank you, Sudarshan. Good morning, everyone. Firstly, I want to congratulate the entire staff of Rainbow, both clinical and non-clinical, for their unwavering support in delivering a revenue growth of 23.2% year-on-year during the quarter ended September 30, 2026, which comes on the back of two solid performances in the last two trailing quarters. Team Rainbow is all set to end FY 2027 on a very high note. Over the last three quarters, we have been focusing on and driving the following broad levers that we have been talking about building during our earlier calls: people, technology, best-in-class clinical outcomes, and growth initiatives like onboarding new clinical talent, focusing on community connect, and digitization. We have augmented the organization structure, keeping in mind the growth we are driving. We have created structures to manage our facilities in hyper-local and zonal structures to increase the speed of execution.
Our managerial bandwidth at the corporate office is complete with the onboarding of the new CFO. Once again, keeping in mind our journey to 5,000+ beds from the current 2,600-odd, we are transforming to a new HIS, which has already been rolled out in our flagship hospital at Banjara Hills Hospital, Hyderabad, and we have upgraded to SAP S/4HANA. This is to ensure we are in tune with the latest technology and building a tech architecture that is scalable and able to serve us as we increase our capacity multifold. Over the last two quarters, we have had many doctors join our growth journey. Many are in discussions with us. This reinforces the might of Rainbow's medical infrastructure, ethical clinical processes, and the sheer strength of the brand, which attracts top consultants to associate with us.
We have strengthened our outreach to the community by increasing hyper-local activities, including the introduction of a loyalty card called Rainbow Shield, which not only draws new patients by offering certain perks, but also offers Rainbow an opportunity to capture the lifetime value of the patient's journey, starting from the first OPD appointment right up to the delivery and subsequently to the vaccination and any treatment that the child might require going further. Digital initiatives are playing an increasingly important role in our patient engagement strategy. We are expanding our digital presence across the spectrum of our services, supported by focused marketing initiatives and social media outreach. Our new CRM software has further strengthened our patient conversion mechanisms in the hospitals, driving higher outpatient and inpatient volume, as is evident from our reported numbers.
We are gearing up to launch a new website and a new patient app in the next few months to corroborate with the rolling out of our new HIS. This new website and the new app will provide the most advanced and best-in-class experience to the users. The whole idea is to provide a more integrated patient journey, right from booking an appointment to having reports and diagnosis at the click of a button. Owing to all the initiatives mentioned, our mature hospitals have driven occupancies north of 50% and robust revenue and EBITDA growths despite experiencing a soft monsoon and lesser seasonal diseases. Our new hospitals at Rajahmundry, A.P., and Mahadevapura at Bengaluru have progressed well. Both have achieved operational break-even. HRBR in Electronic City, the other new hospitals at Bengaluru, are fast nearing the break-even milestone. All these hospitals are now fully integrated into the Rainbow operating model.
The commencement of operations at Nellore and Guntur adds to a growing network in Andhra Pradesh. At the same time, we remain focused on the execution of our upcoming projects in Mumbai, Coimbatore, Indore, Gurugram, Pune, and Seegehalli in Bangalore. As we expand, our focus is on ensuring the new facilities are integrated effectively into the Rainbow operating model, supported by established clinical protocols, operating systems, and management processes. Our priorities for the coming quarters remain clear. We will continue to drive patient volumes, improve conversion, strengthen capacity utilization, and accelerate the operational maturity of our new hospitals. We remain focused on delivering sustainable growth through strong execution. Thank you. Let me now brief you on the financial performance and the key developments of Rainbow Hospitals for the second quarter and the first half of FY 2026/2027.
Our operating revenue for the quarter stood at INR 548 crore, reflecting a growth of 23.2% compared to the corresponding quarter of the previous financial year. For H1, our revenue stood at INR 1,018 crore, reflecting a growth of 27.6% compared to H1 of the previous financial year. Our EBITDA for the second quarter amounted to INR 170 crore, marking a growth of 14.2% compared to the last year same period. For H1, our EBITDA stood at INR 304.6 crore, reflecting a growth of 20.6% compared to H1 of the previous financial year. The EBITDA margin for the current quarter stood at 31%, while for H1, the EBITDA margin was 29.9%. Profit after tax for the quarter stood at INR 83.9 crore, reflecting a growth of 10.9% compared to the corresponding quarter of the previous financial year.
For H1, our PAT stood at INR 146.4 crore, reflecting a growth of 13.1% compared to H1 of the previous financial year. In terms of operational performance, patient consultations witnessed a growth of 19% compared to the quarter, compared to the corresponding period last year. Deliveries grew by 20%, while inpatient discharges registered a growth of 15%. For H1, outpatient consultations, deliveries, and inpatient discharges grew by 21%, 22%, and 21% respectively, compared to the corresponding period of the previous financial year. Our payer mix continued to remain robust and balanced, with 63.3% of the revenue coming from cash patients and 36.7% from insurance during Q2 FY 2027. For H1 FY 2027, the payer mix stood at 64.2% cash and 35.8% insurance.
I am pleased to inform you that the company's balance sheet remains robust, with cash equivalents, fixed deposits, and mutual fund investments aggregating to INR 542.8 crore as of September 30, 2026. This provides us with adequate financial flexibility to support our ongoing expansion and capital expenditures. During the quarter, the company incurred a capital expenditure of INR 81.9 crore towards development expansion of its hospital network and enhancement of existing facilities. With that, I would like to now throw open the house for questions. Thank you.
Thank you. Anyone who wishes to ask a question, press star and one on your touch-tone phone. If you wish to remove yourself from the question, please press star and two. Participants are requested to use hand to ask a question. Ladies and gentlemen, we will wait for a moment. The first question is from the line of Prithvi Raj from Unifi Capital. Please go ahead.
Yeah, hi. I have a question on your margins. Given that from now on, every year you will keep adding more number of new beds and that too in the new cities, it might take more time for you to reach break-even. How should we look at consolidated margin profile going forward? Will there be a pressure every year because you keep adding new beds, or you think you can maintain a stable margin?
Yeah. I think, see, what we have the beds which are distributed in our various stages. We have a matured group, and we have an emerging group, which is all kind of the hospitals which are nearing maturity. Of course, the new beds will take some time to kind of break even. The block which are in the maturing hospitals, they are going to deliver the EBITDA and along with the mature group. We have been doing this last two years' time without much of margin pressure. We always say that margin pressure, whatever the new beds which you're adding, maybe about quarter to quarter, maybe half a percent, nothing more than that. That is how we've been disciplined in terms of executing our capacity expansion. It will remain to be the same.
I mean, the last two years, we have demonstrated that without much of margin pressure, we were able to kind of deliver a 30% EBITDA margin. Pre-Ind AS is about 25% margin.
Okay, got it. Then the payer mix, historically, you have maintained certain payer profile. But given that you will be entering new cities, should we expect a change in the payer profile, or do you think you will continue only cash-plus insurance?
I think that as far as the major cities are concerned, which is like Hyderabad, Bengaluru, Pune, and Mumbai, I think there is significant insurance penetration. So that will protect the 60%, 65%, 60% of this one. When we have a kind of a tier-two cities, which will have a kind of a less of insurance penetration. So blend it together, blend which we will see it about definitely about 60/40 probably.
Sir, my question is more from a government scheme patient. At any stage, will it be considered, or you would like to stick to only cash-plus insurance?
Yeah. I think for information, we do not do much of government. Our whole government business is less than 1%. So I am talking about cash and insurance, which is the private insurances. Even in tier-two cities, what we have witnessed recently is that insurance penetration has significantly gone up. For example, places like Vijayawada, Rajahmundry, we are already witnessing about 30%, 35% of the private insurance segment, the penetration.
Thank you. That is all from my side.
Thank you.
Thank you. Participants who wish to ask questions may press star and one now. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Good morning, and thank you for the opportunity. I have two questions on your Q2 performance. First, you reported ARPOB growth of 10.48%. Again, I think very strong number. However, what we are looking at, I think the broader industry level, companies are moving from reporting ARPOB to metrics like ARPP. According to you, which metric should be the better representation of performance? And this 10.48% growth which you reported in 2Q, what kind of headroom you see ahead? That is my first question.
The ARPOB has been strong actually this year. I think ARPOB is driven mainly by the case mix. If you see our overall, our obstetrics business has grown significantly, also the addition of the 5% revenue addition from the fertility, also the case mix. These are the three components, and the ALOS, there is a significant lower ALOS. These are the components which actually pushed the ARPOB to the very healthy ARPOB. Normally, we do give the guidance about 7%-8% of ARPOB growth. It does kind of happen sometimes when you have a kind of a better case mix, also more obstetrics doing it, and fertility adding it to them. Also, mind you that the children's hospital and women's hospitals, we do a significant outpatients as well. So that will add to the ARPOB.
The ARPP, yes, ARPP is again, it only reflects on the inpatients year-on-year growth. So the ARPP growth can be a very steady and static sometimes because of how you negotiate your insurances. Sometimes it takes an extra year time. If we combine ARPP after three years on average, it will be around about 6%-7%.
Broadly in the similar range as what we foresee for ARPOB, right? Either of them, somewhere 6%-8%.
Yeah.
And sir, in your presentation, we see more details, and thank you for that. So for the mature hospitals, we still see occupancy of 54.2%. So, because of your nature of business or mix, et cetera, what kind of maximum occupancy you think is possible in your mature hospitals?
Yes, we do look at a kind of a driving work. What we can do maximum is about 60% occupancy. If you see our mature hospital now, there is seasonal softness here. That's what it gives you additional extra percentage because of the monsoons, delayed monsoon. I mean, we have literally not seen any of the seasonal business. In a way, I think I would like to reiterate that now, without any much of season, we were able to deliver the numbers this quarter. That signifies that now we are significantly moving away from the seasonality. Seasonality will always add for any healthcare institutions, more so with ours, to additional occupancy and additional revenue, which gives us more comfort. But this is a quarter which has actually been last three quarters we have seen that we are not witnessed any of the seasonal business.
This is a pure play of kind of a pediatric and maternal care business.
Okay. My last question is, sir, now you have a plan to enter many more cities, newer cities, as a part of your expansion. Just wanted to understand your thought on any kind of execution risk you see by entering into newer markets, and that too in, I think, similar timeframe, another like four to five years from now. Just want to understand your thoughts on entering so many multiple markets over next few years, and any execution risk you might foresee here.
Damayanti, we have built a strong project stream and with the project director heading the teams. We do kind of see that now budget enough amount time for each project. Sometimes it may be delayed. I won't expect to be in a more than two quarters. But most of the times, we were kind of a plus or minus one quarter, we were able to deliver the projects. So maybe in exceptional situations, we not come across the huge delays. For example, Chennai, we got some delay because of our re-approvals and those things. We have come back and communicated to you. There's about six months delay of Chennai. Now, I think it's on track now. So, it is important that now keep you updated on timelines of our projects. I won't expect these timeline delays is significantly high.
These CapEx will be funded mostly through your funds, right? There is not much reliance on borrowings, et cetera.
I think we have a very healthy balance sheet. I mean, with the 1,000 + beds what we have, we should be able to. That is cash. The balance sheet generates enough cash. Plus, the cash on the balance sheet should suffice. That is what we kind of are looking at to fund it.
Okay, sir. Thank you. I will get back in the queue .
Thanks, Damayanti.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Jyothish Vijayan from Motilal Oswal Financial Services. Please go ahead.
Hi. Am I audible?
Yeah, please.
Yeah. Jyothish Vijayan from Motilal Oswal Financial Services. Thanks, team, for the opportunity. My first question is on your marketing spend. Right now, how much is your marketing spend as a percentage of revenue, and what channels you opt for the marketing, and how it is going forward?
Yeah, so we would be a little more than 2% on our marketing spend. We have significantly looked at marketing this year, and we are looking at various channels, as I said in my speech. One is we are really going close to the community in various ways. We have introduced loyalty cards. We have looked at entering corporate, private corporate, increasing the connect there. I think all that leads to our marketing strategy. Another important step we have taken is digitization. If you look at Rainbow over the last three quarters, the digital footprints of our patients are increasing substantially. So more and more patients are now looking at Rainbow digitally and going to websites, looking at our apps, and that's how we are creating a patient funnel, led by a strong and robust conversion in the hospital.
It's a combination of above-the-line marketing, digitization, and getting really, really close to the community. And that strategy will go on and continue to build as the time goes on.
Okay, got it. And as a group, your targeted occupancy will be 60%, right?
Mature.
Yes, for the mature hospitals, that will be the number.
60%. You have seven hospitals in the emerging cluster, and you have five new hospitals also. When as a group, when do you have any time period target to get the occupancy to 60%? Do you have any kind of target by FY 2028 or FY 2029, like that?
See, it is very difficult to predict the time. I think we are doing everything right in terms of inputs. Whatever is required to drive occupancy, that is increasing volume, we are doing. Our throughputs are very high. Our ALOS numbers are very, very strong. We continue to target and recruit new doctors on board. We get closer to community connect. We rehash our call center. We keep on strengthening our tech. I believe all these inputs are in place, and without telling a time, I think we will be able to drive our occupancies to that number in appropriate time. That is the way I put it.
Got it. I have one more question. When you look at the specialty mix, right now the IVF is nearly 5% compared to 3% in the last quarter, FY 2026. Do you have any plans to increase the percentage to double digit, or do you have any kind of plan to increase IVF mix?
See, for our business, IVF is very, very in-house, okay? As our obstetric OPDs keep on increasing, okay, we will keep on driving patients into IVF. As our obstetric business grows, our IVF will grow parallelly. Yes, we have two or three standalone centers, which we have started some time back. But largely, the strategy remains driving our in-house OPD consultations into IVF. Proportionately, it will keep growing along with the obstetric OPDs.
Got it. Okay, thank you. Thanks so much. That is all from my side. Thank you. All the best.
Thank you.
Thank you. Participants who wish to ask questions, may press star and one, [on their touch-tone phone] . The next question is from the line of Shubh Kalra from Asit C. Mehta Investment. Please go ahead.
Thanks for the opportunity. My question pertains to the ramp-up of your fertility business and its potential contribution to the company's overall profitability. Could you please kindly share an update on the progress of the IVF business so far, particularly in terms of scale-up and its operating performance? Further, if you could also share the current EBITDA margin separately for each of the three business verticals, which is the pediatric care, women and child care, and fertility IVF. It would be helpful in understanding the relative profitability of these businesses. As the fertility business scales up and its contribution to the overall revenue mix increases, how should we assess its potential impact on the company's consolidated EBITDA margins for the medium term?
Okay. As I said earlier, we will keep on ramping the IVF business through the growth of obstetric OPDs, because that is the first port of call. As a patient comes to an obstetrician, it is largely the obstetrician who decides whether a fertility advice is required or not. If you see the growth of our current IVF business, it is largely in proportion to how our OPDs have grown. Yes, we have got two, three standalone centers where we deploy various strategies to increase the business. Our IVF business will keep growing in two ways. One is proportionately to the OPD growth of obstetrics, and secondly, as we set and get settled in our new centers, and as our marketing strategies, which are largely digital, start firing. This is how we look at IVF business.
Of course, it will keep on contributing to the overall mix and profitability. To define the three different profitabilities between specialties would not be appropriate on this call, maybe. But if your question, the first question on how we plan to grow our IVF business, that is the answer.
Got it. Thank you.
Thank you.
Thank you. The next question is from the line of Pavithra Jaivant from PrimeInvestor. Please go ahead.
Hi. Thank you for the opportunity. Mr. Abrarali, with regards to the recent oncology drug price caps that are coming into force, I wanted to understand if and what sort of impact this would have on Rainbow.
Okay. See, I'll just break up our cost. The pharmacy cost currently for Rainbow is around 14%. Out of which around 7% is vaccinations, which is nowhere next to a drug cap. From the balance 7%, if you look at our business, only less than 0.5% would be oncology and drugs that may come under any scanner for price capping. So, very, very clearly, and we said that before that for Rainbow, this price capping is almost insignificant.
Thank you.
Thank you. The next question is from the line of Rahul Jeewani from IIFL Capital. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. Sir, in terms of, let's say, the profitability profile between the various clusters, now while emerging hospitals are, let's say, at a lower occupancy profile than mature hospitals, we see that their EBITDA margins are broadly in line with the mature hospitals. If you can comment in terms of what is helping us drive, let's say, fairly strong margins within the emerging cluster. Then a related question for that would be, with the ramp-up in, let's say, the new hospitals, what kind of an EBITDA margin trajectory you see for the new hospitals over the next two-year period? Obviously, with, let's say, incremental capacity coming online, there would always be new hospitals which will get added to the new cluster.
But as of now, whatever new hospitals are you operating, when do you expect those new hospitals to, let's say, reach a steady state EBITDA margin profile of between 20%-25%?
Rahul, I think this classification is mainly done for the analyst sake, actually. We have clearly matured hospitals which are more than five years. We have another group of hospitals which are emerging hospitals, under new hospitals. The clearly to see that in emerging hospitals, will also shows, are the ones which are going to fire, or the ones which are going to contribute significant EBITDA. Also, as we are actually adding more and more beds, after second year, they get into the emerging pool. So, in an emerging pool, the EBITDA are fairly healthy. That's how we look at it. Also, the new hospitals, it depends on the way the new hospitals are done. For example, when the new hospitals are done in a cluster like Hyderabad, and they, you know, no brainer, it will do a positive EBITDA the first year.
So, Bangalore will take about in a year, 15 months' time. Chennai will take about 15, 18 months time. So, other places, we see in less than two years, most of our hospitals will be EBITDA breakeven. So, this is what, whether it is including a new geography. This is how we have positioned ourselves. Therefore, we need to look at the matured hospital to see that what it's contributing. Emerging hospitals are how well that kitty is growing and also contributing significant revenue as well as EBITDA and also the occupancy levels. That's where the healthiest part of it, what we see. I think that's what it demonstrates in our presentation, that the emerging hospitals are very healthy. So, the third bit is that, the new hospitals.
If you see our new hospitals, see that now, there is numbers are good, but there is a - 16%. Those are all sorted in the last six months or eight months time. Obviously, the operational losses will be in that account. It depends on how many hospitals we start, and also where we start also. If I had started a couple of hospitals that were there in that block from Hyderabad, that could have been even better. So, I think that this split gives you a lot more in a way that, for ourselves internally, for also analysts, gives a lot more clarity as to how the block is moving. Because we have almost like a 100% beds, bed capacity of another 2,400 or 2,300 beds are going to come in the next three years' time.
This classification will give us a kind of a position as to understand our business better, rather than clusters or rather than this one. Aging is very important for the hospitals, especially children's hospitals.
Sure, sir. You obviously refer to the fact that most of your hospitals would tend to achieve break-even within a two-year timeframe, depending on the markets where you are commissioning those hospitals. Would you have the same expectation for the Delhi NCR hub hospital as well, that how much time do you think that the Delhi NCR hub hospital would take for you to achieve EBITDA break-even? And what kind of an EBITDA loss we should factor in our numbers, essentially from the two Delhi NCR hospitals in FY 2029 and FY 2030?
I think it's very early to kind of talk about it, and probably now we would give the guidance probably six months or three months before commencing the hospitals. Because we have ambitious plans and recruitments, and also how to drive these hospitals. Obviously, that we would look at drive these hospitals to EBITDA break-even in two years' time.
Okay. Sure, sir. With some of the sales and marketing investments which we are doing this year, what we see is that there is an acceleration in our top-line growth trajectory. This quarter as well, we delivered a healthy 23.2% kind of a top-line growth. In the past, we have guided about a 20% revenue CAGR for the business. Let's say with these incremental sales and marketing investments and the capacity pipeline which we have, do you think that potentially our growth could be higher than 20%, which you have indicated in the past, going forward?
Rahul, we are working pretty hard in all these initiatives and growth initiatives. Having said that, we remain optimistic, but we'd still talk about high-teens growth. But we will remain optimistic of higher growth in terms of top line.
Okay. Sure, sir. I will join back the queue .
Thank you. Before we take the next question, we would like to remind participants that you were pressed star and one to ask a question. The next question is from the line of Alankar Garude from Kotak Institutional Equities. Please go ahead.
Hi, good morning, everyone. Sir, for the mature hospitals, as occupancies range up, can margins theoretically go up further?
We are already at a pretty best-in-class kind of margin in mature hospitals. My comment here will be that, yes, we will keep on driving the top line, keep on trying to increase the efficiencies, the occupancies, and remain optimistic of a similar or slightly better maybe margin.
Would there be a significant dispersion in margins across these 14 mature hospitals?
Yes, there would be, but it would all again depend on the city that we are in and the levels of occupancy that we are at, and what is the popularity of our brand in those cities. Again, it is very, very related to top line. So it will remain variable, but not too far. It will not be a very big window of variability.
Got it. The second question is, now without the seasonal benefit, volumes have picked up quite well across IPD as well as OPD. You have been speaking about the growth initiatives. Can you help us assess where are you in this journey, and have you more or less bridged the gap versus multi-specialty hospitals when it comes to marketing, the digital initiatives, basically the overall growth initiatives that you have been outlining?
See, we have a very clear path. We have a proper plan, which is for these growth initiatives, which we have kind of spelt out to ourselves for the next 1.5, two years. If you ask where we are in that growth journey, we may be 50%, 60%. With the rollout of our new HIS, things will get trended. Having said that, again, I wouldn't compare with multi-specialty. It is a very different business. Ours is more of an awareness and conversion-led business, and we are working on that. So let's see how it goes, but yes, it will get better with time.
Got it. Yeah, I think few quarters back, Abrarali sir, you had mentioned the gap is around 35%, or you were 35%, 40% of where the multi-specialty hospitals are.
Yeah.
Right now, you're saying it's around 50%, 60%.
Sure.
Should we expect you to bridge the gap completely, even though there is a difference in the model?
No, see, again, if you look at it qualitatively in terms of, if you're measuring between with multi-specialty, as I said, we're getting there. We will get better. Let's see how it goes. It's a very dynamic changing market. Even marketing tools keep changing, the avenues of marketing keep changing. As we go on, we will obviously keep on trying to reduce the gap. I think clearly, the volume growth signifies that we seem to be on the right track. So we'll continue, and let's see how it goes.
Got it, sir. One final question. As you expand into newer cities, how will you ensure the hub-and-spoke model remains intact without experiencing any material delays in establishing the hub-and-spoke network?
I think what so far we were able to do very effectively in Hyderabad and Bengaluru is actually now six hospitals, seventh one is being built. In terms of bringing synergies and also trying to kind of see that the benefits of that hub-and-spoke, we have seen it very clearly. Now we are in the state of Andhra Pradesh. It is a very long stretch state, so we were there right from Visakhapatnam to Chennai, at the end of every almost 200 km, one hospital is there. This is the network effect which always will turn out positive to any hospital group. For complex patients and all those things will get referred automatically to your hospitals. Delhi NCR, at the moment, what we have is we have our two hospitals.
Once we have the hub hospital over there, naturally, we have quite a big plan, ambitious plan about doing a spoke hospital within the NCR as well as in the north. The playbook changes significantly towards north in the next three to five years' time. That we are quite ambitious about it, and we are rightly ambitious about it.
Just to understand this clearly, now when we are expanding in Hyderabad and Bengaluru and Chennai, around Hyderabad or around Bengaluru, Chennai, relatively, it was three cities wherein you were expanding the network out there. But when we talk about the current expansion plans, be it Mumbai or Indore, you have spoken about projects under discussion being in Lucknow, Jaipur, Bhubaneswar, Chandigarh, et cetera. Essentially, you will have to establish that network across multiple cities. That is why that question as to would there be a delay in establishing a network because you cannot possibly expand and have so many new hospitals coming in across so many different locations?
Yeah, it is about three to five years journey, this one. I think our focus is significantly changing to north. North is what we believe is an opportunity and also very underserved, and also that these cities definitely need children's hospitals. I think that has been witnessed and seen by in the multi-specialty, in the birthing centers everywhere. We will take multiple parameters, whether it is the birth rate, whether it is the affordability index going up, and also the number of players doing the pediatrics in this domain is significant. That is why we see north is a big opportunity for us, and I am sure someone like Rainbow, with almost close to three decades experience, we can play out very well in north. Yes, we do need to have a significant managerial teams, and the CapEx outlays, we are pretty clear about it, how to go about it.
Once the Gurugram hospital starts, then, and meanwhile, all these things, we will put them in the framework, start working on it.
Understood, sir. That is it from my side. Thank you and all the best.
Thank you.
Thank you.
The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi. Good morning, all of you. Just a follow-up on the previous question regarding the drug margin capping. When you say 14% is the pharmacy cost, do you mean to say that 14% of your revenue comes from pharmacy?
Yeah, that's 14% of net revenue is the cost, is the cost.
Sorry. Cost as in 14% of your net revenue?
The pharmacy cost is 14% of the net revenue. Yes.
Yeah, pharmacy is 14% of revenue. Okay. Just want to understand, right now the margin cap is only on oncology, but if at all, if it gets extended to all medicines, the margin cap, would that have a very serious impact on this 14%?
No, it would not. See, again, as I said, 7% is vaccinations, okay, which can only probably go up. Of the balance 7%, okay, the caps which are getting discussed, many of them are already implemented. All this falls in our window only less than around 0.5%. As I said before, it is very insignificant, even if these caps come. Because these caps are likely to come on higher antibiotics, so on and so forth, and onco drugs, as you rightly mentioned. So in our business, that is very insignificant.
Okay.
I will just give you a little more medical clarify that. See, the drugs cost for the, for example, obstetrics is very minimal. In gynecological, very minimal. Drugs cost comes in IVF, oncology. Most of the antibiotics being almost whatever we use currently, antibiotics are already being 100 DPCO, okay? So we have done a deep dive and looked into it. I think the impact, whatever is being talked about it, is very insignificant. Some oncology drugs comes, or if the old list of drugs comes, some to an extent of IVF drugs comes. Otherwise, we are fairly ring-fenced. Overall, I am not calculated how much EBITDA compression will come. I am pretty sure that it will be much less than 0.5%.
Understood. What do you say vaccinations will not get impacted? Is that outside of drugs, price, or marketing controls?
Most of the vaccinations are actually international brands, and I am not sure how it is going to work because there are too many varieties of vaccinations. Vaccination is a patient's choice, and patients do come and ask because we being a private children's hospital, and most of the times, parents do come and ask for, "I want GSK, I want Sanofi, I want Merck." Then obviously, it is a choice of the vaccine. It is not something that an emergency or disease. These are more of a kind of a lifestyle. People want to have a choice to get what they want to do. Very unlikely to be.
Got it. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Rahul Jeewani from IIFL Capital. Please go ahead.
Yeah. Thanks, sir. Sir, beyond, let's say, the disclosed projects in the pipeline, the presentation talks about ballpark around 1,100 beds getting commissioned across these new cities. What would be your approach in terms of expansion in these new cities? Would you look for M&A assets to enter some of these new cities, or our approach would be to largely expand organically within these new markets?
Some of them are organic, and there are some opportunities also there, which probably may work out for us.
Okay. And sir, in terms of M&A opportunity, what kind of valuation multiples you are seeing for some of these assets? If you can comment on that as well.
I think what we have done so far is about, we have given an EBITDA, EV/EBITDA multiples about 11x maximum. That is what we have done.
Yeah, Rahul, on the M&A front again, there won't be, since we are a pediatric hospital, there would be very like-to-like kind of opportunities for M&A in the market. We wouldn't be looking at getting into adult acquisition, and then, it wouldn't work out. To that extent, it would be limited, inorganic.
Okay. Sir, do you have any number in mind in terms of, let us say, out of these 1,100 beds across these new cities, what proportion could come through from M&A?
Very difficult to say at this point, Rahul. Though we are under lots of discussions, it would be, we wouldn't be too sure at this point.
Sure, sir. Sir, just in terms of, let's say, some guidance around margins. Now obviously, this year, our margins are slightly under pressure because of these incremental sales and marketing spends which we have done. If you can comment in terms of where you see your overall margins landing up for FY 2027, and then how you see that playing out over the next two-year period with the incremental capacity which is going to come online for us?
Rahul, I think, as Dr. Ramesh said earlier, we will be looking at a red line of around 25%-26% pre-Ind AS EBITDA, even after all the expansion. Currently, our margins, they are pretty healthy, and I think they will remain robust because if you look at the split between our three categories, it is faring pretty well. As the new hospitals come in the profitable bracket or start burning less money, our margins will probably remain the same, get slightly better. That is the way we look at it.
Sure, sir. Let's say there is ballpark 25%-26% margins. Do you think that those margins can sustain with the Delhi NCR expansion as well? Let's say for the first year when Delhi NCR would have some losses. Because obviously, we would see some expansion on our base business profitability. With Delhi NCR, is it possible to sustain these 25%-26% margins?
Rahul, how I would look at this, I would look at it that growth as a balance sheet, as a balance sheet, as kind of expanding balance sheet, expanding the revenues, and that is the trajectory. Now, you are covering a lot of multi-specialty hospitals, that is the same scenario, isn't it? There will be margin pressure, probably a few quarters for a year time, maybe 1%, 0.5% - 1%, but that can be absorbable. Because you are already kind of on EBITDA trajectory of 25%. For us to ambitiously growing the network and building a larger footprint, that 0.5% - 1% EBITDA compression is not going to be a negative because the Delhi hospitals are our own hospitals. Also, we have ambitious plans how to ramp up these hospitals. We have a plan to commence this hospital stage-wise, not to burn too much of money.
These are all things which are operationally how we want to do it, how we want to reduce the burn. Meanwhile, your entire south is going to be a kind of a mature stage. By the time Delhi comes, and most of the hospitals come into mature stage, that will all start firing. Which is why that's a backdrop of us saying about we will continue to deliver about in and around 25% of the pre-Ind AS EBITDA. I mean, maybe a margin pressure may come about 0.5% when there is a too many beds come into the few quarters into the play. That's the reality, that's truth of the story. I mean, I keep tracking of all other hospitals. It's the same scenario for everybody. Perhaps we are in a better stage than many other people in terms of margin pressure.
Yeah, obviously, sir. That, as you rightly pointed out, that despite, let's say, this 50% capacity addition for us for past two years, our margins have held pretty steady. So yeah, my question was just from Delhi NCR, because it's a large hospital and a new market. So yeah, sir, thanks for providing that clarification. I will join back the q ueue.
Rahul, thank you.
Thank you. The next question is from the line of Shubh Kalra from Asit C. Mehta Investment. Please go ahead.
Yeah. Thanks again. Just a follow-up on my previous question. Without getting into specific segment-level margins, would it be possible to indicate whether the EBITDA margins of each of the three verticals are higher or lower than the current consolidated EBITDA margin of around 31% post-Ind AS? The objective is to understand whether the increasing contribution of the IVF business is likely to be margin accretive or margin dilutive or similar for the company as it scales on a consolidated level. Thank you.
Pediatrics, obstetrics, and IVF margins separately, are they higher or lower than the EBITDA margins at the company level?
The specialty-wise.
The specialty-wise EBITDA margins.
No, we're not looked at so far specialty-wise margins. I think the pediatrics and obstetrics goes together hand in hand in terms of margin profile. IVF is a small business at the moment, still about It's grown well, about 3%, now it's reached to 5%. We'll have to start looking at differently now as we move forward. At the moment, it's not that significant for us to give a separate line item.
Got it.
Thank you. The next question is from the line of Tushar Raghatate from Omega Portfolio Advisors. Please go ahead.
Yeah, thank you for the opportunity. I just want to know on the competition, like Kids Clinic, we have, you know, the hospital in common with them for the Hyderabad, Bengaluru, Chennai, Delhi, and the upcoming pipeline also, they already have hospital in Pune, Mumbai, and Gurugram. I just wanted to know, though we are better in terms of, you know, the margin profile and the ROE, ROCE, I just want to know the pressure in terms of the competition from the Cloudnine chain.
We have been there last 20 + years, 25 years almost. I mean, I think they have been operating in our competitive markets as well. We are a larger player. We are not a mom-and-pop stores. We are not obstetrics, and we are more of full-time doctors driven, long-term institutional way of doing things, and a much larger forte. We never seen them as competitors like the Reddy. Reddy has been there in Apollo Hospitals and significantly in Hyderabad for a long time, not able to do any impact on us. The other Motherhood has come and gone. Many people there who, the local chains as well, we continue to grow our obstetrics as well. They tell there is any kind of some degree of competition, some is only obstetrics.
Otherwise, our children's play is much larger, and that doesn't have much competition. We don't feel any competition.
Fair enough, sir. I just wanted to know, whenever you start a new hospital, in how many years do we see that turning into a matured one? Just about-
Maturity take, it depends. Some geographies, it will become a kind of matured hospital in three to four years time. Some places it may take a little longer than four, five, six years time. It depends on the even the micro market, it's a demand. Suppose, spoke hospital in some micro markets, they do phenomenally well by third, fourth year. They will kind of be reaching company EBITDA. Some of them will take little longer, two more years. It is very variable, city to city and also micro market to micro market. Overall, how I have, I mean, in Hyderabad, if I do any hospital, whether small or big, medium, we will break even in the first year. Bengaluru will take about 15 months time. Chennai may be about 15, 18 months time. This is how our trajectory been.
That is why I have been saying about, you know, moving to Delhi, whether it is a big hospital or small, I think we should be able to kind of break even in two years time.
Okay. Thank you.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Yes, thank you. Thank you, investors, for joining the conference call and giving your views and asking the thoughtful questions. Thank you very much for this. If you have any questions, you can reach out to investor relations team at the Rainbow Hospitals. Thank you. Thank you very much.
Thank you very much. Thank you.
Thank you.
Thank you, everyone.
Thank you. On behalf of IIFL Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.